Good spread
Family IV · Costs
Not to be confused with spread, forex spread, raw spread.
Good spread is a relative judgement about the cost of immediacy in a market, not a defined category. A spread that is good for one instrument, session or strategy may be poor for another, because typical spreads vary by asset, venue, liquidity and volatility. The term therefore describes a comparison against a benchmark, not an absolute level.
What makes a spread good
A spread is the difference between the best bid and the best offer. Whether it counts as good depends on context:
- Instrument norms: a major currency pair may routinely trade at fractions of a pip, while a small-cap equity may have a spread many times wider.
- Session and liquidity: spreads typically widen outside active hours, around news releases and when liquidity providers withdraw.
- Volatility: fast markets usually bring wider spreads because the risk of holding a position between trades rises.
- Trade size: the quoted top-of-book spread may not apply to larger orders, which can consume multiple price levels.
Because these factors vary, no single number defines a good spread across markets or brokers.
Worked example
Two traders assess the same quoted spread differently because their benchmarks differ.
The same 1.2-pip quote is poor for one strategy and good for another, which is why the term is comparative.
Practical checks
Assessing whether a spread is good usually involves comparing the live quote with a reference point: the instrument's recent average spread, the spread at the same time on previous days, or the spread available on other venues. Traders also check whether the quoted spread is firm for the intended size, since displayed depth may be limited. Because spreads are not fixed, any figure cited as typical should be treated as varying by broker, instrument and market conditions.
Often confused with
- spread
- The spread is the objective difference between the best bid and best offer, whereas a good spread is a judgement that this difference is favourable; the visible sign is that the spread is a number, while a good spread is an opinion about that number.
- forex spread
- A forex spread is the bid-ask difference in a currency pair, while a good spread is an assessment of any instrument's spread; the visible sign is the presence of a currency pair in the former and a benchmark comparison in the latter.
- raw spread
- A raw spread is a specific pricing model that passes through interbank or liquidity-provider spreads, often with a separate commission, while a good spread is a relative judgement that can apply to raw or bundled pricing; the visible sign is a commission line accompanying the raw spread.